Friday, December 30, 2022


            Mountain Classic Real Estate, as Buyer, entered into a contract with Rocky Mountain Hospitality, Seller, to purchase a 65-room Super 8 motel for $3.4 million. Buyer deposited $30,000 as earnest money with an independent title company, in escrow. Presumably the title agency was not owned or controlled by Buyer or Seller.

            If Buyer defaulted, a contract provision allowed Seller to either receive and retain the earnest money as liquidated damages, or forego the EM and instead pursue litigation for specific performance or damages.

            Buyer defaulted. Seller eventually sold the motel to another purchaser for $2.75 million - $650,000 less than what Buyer had agreed to pay, as COVID destroyed hotel and motel pricing when travel across the USA was severely curtailed.

            Seller sued Buyer seeking damages of $780,000 +. When Seller filed the lawsuit, it had not instructed the title company to return the earnest money to Buyer.

            Buyer defended by arguing that since Seller did not release its interest in the EM before filing the complaint, Seller had elected to keep the deposit as liquidated damages. And in that event, Seller could not pursue other remedies.

            11 days after Seller received Buyer’s motion to dismiss, Seller released its interest in the EM. Buyer refused to accept the delivery of the earnest monies.

            The district court granted Buyer’s motion to dismiss, finding that Seller had failed to return the EM before filing the litigation. Due to such failure, Seller had elected to retain the EM as liquidated damages and could not pursue other remedies.

            Seller appealed.

            The Appellate Court found that Seller maintained “constructive control” over the earnest money for 36 days after Seller filed its lawsuit. And in doing so, Seller effectively attempted to elect all contractual remedies simultaneously, which is inconsistent with the contract provision allowing Seller to only elect one remedy to the exclusion of all others.

            By retaining control over the deposit Seller chose to relinquish the opportunity to seek other remedies, even if Seller did so inadvertently. So says this Court.

            Buyer wins, again. Seller loses, again. See Rocky Mountain Hospitality v. Mountain Classic Real Estate; Supreme Court of Utah, Case No. 20210798, December 22, 2022:,44&as_vis=1.

            Questions / Issues:

  1. Am I the only one surprised by this outcome? This Supreme Court draws the conclusion that Seller had control over the earnest money, when the reality is that the only party truly in control of the EM is the title agent. Regardless of instructions received from Seller or Buyer, the title agent may have refused to release the EM and instead retained it until a satisfactory Release Agreement was signed, a Court Order issued, or otherwise the title agent could have deposited the EM into the registry of the Court.
  1. Is it really that simple for a party to elect remedies, with land mines for those are neither wary nor experienced? And, once Seller realized Buyer’s position but before the trial court had dismissed the claim, couldn’t Seller have released its complaint, instructed the title agent to refund the EM to Buyer, then refiled its lawsuit before anything was concluded?

       3.  At least in Utah, default provisions must be carefully worded to avoid the result in this case. I wonder how many other States follow this same unusual path traversed by the Supreme Court of Utah.


                                                                                    Stuart A. Lautin, Esq.*

* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law, Texas Board of Legal Specialization

Licensed in the States of Texas and New York


Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.

Thursday, December 1, 2022


            I Square Management LLC is a hotel management company that also builds and renovates existing hotels. I Square and an affiliate, AKH Hotel, LP, purchased a hotel in Knoxville, Tennessee, and planned significant renovations. As part of the renovations, I Square and AKH bought furniture, fixtures, and equipment, and stored it in a warehouse pending project completion.

            During the project their insurance agent, McGriff Insurance Services, Inc., advised that a “builder’s all-risk” policy was unnecessary. After a flood destroyed much of the property in the warehouse, I Square and AKH filed claims with their insurers.

            AKH and I Square sued McGriff when claims against their insurance carriers were denied. The theory of the lawsuit was that McGriff negligently rendered advice that AKH and I Square need not purchase a builder’s all-risk policy. And that an all-risk policy would have adequately covered the loss.

            The district court, finding that McGriff had no duty to give advice to its customers regarding the availability of different coverages or that adequate coverage existed, granted judgment for defendant McGriff.

            Plaintiffs AKH and I Square appealed.

            The first test undertaken by the appellate court was to determine if McGriff owed a duty to its customers to explain and recommend various coverages. Absent a duty, I Square and AKH have no recourse.

            The appellate court found, at least in this State, the “long established rule placing a responsibility on the insured to educate himself concerning matters of insurance coverage.” An agent may inform the customer of the availability of various insurance products, but the agent has no obligation to do so.

            However, where an agent and insured have a “special relationship” then a duty may be imposed on the agent to advise the customer of appropriate insurance coverage.

            To utilize that exception, AKH and I Square claim that McGriff is a highly skilled expert, and that both I Square and AKH completely relied upon assurances offered by McGriff. To their detriment.

            Unconvinced by this position, the appellate court responded with “It would be the rare agent who does not hold himself out as highly skilled, and the rare insured who doesn’t rely on the agent’s skill in making insurance selections.”

            As a counterpoint, the Plaintiffs offered that McGriff sought to do business with I Square and AKH. Not the other way around. McGriff then met with I Square at I Square’s offices to pitch McGriff’s insurance prowess and a plan that would streamline I Square’s insurance practices and save it money.

            McGriff also promised to service I Square’s existing policies for free and when the policies were ripe for renewal, McGriff would recommend one universal policy to cover all projects instead of multiple and more costly policies.

            Induced by those assurances, I Square abandoned its existing agent and turned to McGriff.

            Remaining unpersuaded by any of this, the appellate court determined that no special relationship exists that would merit the imposition of liability upon McGriff. Absent that duty, it is irrelevant that Plaintiffs relied on McGriff’s suggestions, and that Plaintiffs suffered significant damages.

            McGriff wins; AKH and I Square lose, again. See I Square Management and Arkansas Knoxville Hotel v. McGriff Insurance Service; US Court of Appeals, 8th Circuit, Case No. 21-3256, November 9, 2022:

            Questions / Issues:

  1. Did the outcome of this case surprise you – did you expect Plaintiffs to receive a Judgment against their insurance agent for Plaintiffs’ damages? I did.
  1. How will you change your practice based on this case? Engage risk managers or paid insurance consultants, perhaps, to render written reports upon which you may rely? Because otherwise, you may have no recourse against a negligent insurance agent.
                                                                                      Stuart A. Lautin, Esq.*


* Board Certified, Commercial (1989) and Residential (1988) Real Estate Law, Texas Board of Legal Specialization

Licensed in the States of Texas and New York


Reprinted with the permission of North Texas Commercial Association of REALTORS®, Inc.